Poll bares mixed GDP, inflation outlooks

By Melissa Luz T. Lopez
Senior Reporter
GROSS DOMESTIC PRODUCT growth likely picked up a bit last quarter compared to the three months to June despite faster inflation, which could have sustained its pace in October, according to a poll of 15 analysts which BusinessWorld conducted late last week.
The Philippine Statistics Authority (PSA) is scheduled to report October inflation data on Tuesday and third-quarter GDP performance on Thursday.
It will also report September factory output data on Tuesday, as well as September trade in goods and third-quarter farm performance on Wednesday.
INFLATION
Last week’s survey yielded a median inflation estimate of 6.7% for October, which if realized will match September’s pace that was a nine-year high. This falls within the 6.2-7% estimate range given by thea Bangko Sentral ng Pilipinas (BSP) on Wednesday, but represents a surge from October 2017’s 3.1%. The poll’s median is higher than the 6.5% estimate of the Finance department, which said that inflation likely eased last month as food prices “stabilized” with additional rice supply from imports and local harvest.
Ildemarc C. Bautista, head of research at the Metropolitan Bank & Trust Co., cited the effects of monetary and non-tariff steps taken by the government, saying: “It appears that government efforts to bring down inflation and previous BSP rate hike actions are already taking effect, with inflation expected to continue going down all the way to below four percent around middle of 2019.”
Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, said the non-monetary measures introduced by the Duterte government to increase supply of rice, vegetables and farm crops “appear to be taking root.”
Still, some analysts said prices may have risen even faster last month.
“While the prices of vegetables, fish and other food items were lower in October than September, rice and petroleum prices continued to rise month-on-month,” said Emilio S. Neri, Jr., lead economist at the Bank of the Philippine Islands.
“Lower prices in electricity, petroleum and rice felt over the last two weeks of October were, unfortunately, not big enough to offset the surge during the earlier weeks of October,” Mr. Neri explained, giving a 6.9% estimate.
That counters the BSP’s view that inflation may have already peaked in the third quarter.
Inflation averaged five percent in the nine months to September, still below the BSP’s upward-revised 5.2% forecasted average for the entire year but well past the 2-4% target range. The central bank has conceded to missing this year’s goal, adding that recent policy tweaks are meant to prod inflation back to below four percent in 2019.
The economists also noted that still-high inflation may prompt another rate hike from the BSP at its Nov. 15 or Dec. 13 meetings, taking the cue from Governor Nestor A. Espenilla, Jr.’s hint of a “moderate” response to persistent price pressures.
GROWTH FASTER
At the same time, analysts were upbeat about the economy’s performance in the third quarter, which they said was driven by state spending and investments at a time of higher prices of basic goods.
The poll saw a 6.3% median estimate, which if realized would pick up from the disappointing six percent pace logged the previous quarter but would still be slower than the 7.2% climb posted in July-September last year.
If realized, this would keep GDP growth steady at 6.3% in the nine months to September, slower than the downward-revised 6.5-6.9% target set by economic managers.
“We expect Q3 GDP growth to rebound significantly, led by the construction sector as government spending on infrastructure projects accelerated, and the manufacturing sector holding up as indicated by monthly IP (industrial production) data,” said Nomura’s Euben Paracuelles.
Government spending sustained robust momentum as of September, marked by a 26% year-on-year increase in “productive” disbursements for that month alone, according to the Bureau of the Treasury.
Infrastructure spending also surged by half in the first eight months marked by a 70.5% increase in August, according to the Department of Budget and Management.
PSA data also showed an 8.8% increase in factory output in August, albeit slower than the 11.9% output growth the previous month.
Moody’s Analytics also gave a 6.3% GDP forecast for the third quarter.
In a separate market report, ANZ Research said private spending “may have eased,” as bared by slower growth of consumer loans and auto sales due to higher inflation and rising borrowing costs.
Inflation averaged 6.2% in the third quarter, well past the government’s target range. That triggered a series of tightening moves from the central bank, bringing the key borrowing rate to 4.5%, the highest in nearly a decade.
Victor A. Abola, professor at the University of Asia & the Pacific, gave a 6.1% growth estimate for the quarter, citing “poor agriculture” performance that likely dragged the overall economy.